Why Amazon Has So Many Counterfeit Goods - YouTube

Every year, more than 11 million containers arrive into the U.S.

by sea. Another 13 million come from road or rail.

And another quarter billion packages enter the U.S.

by air travel.

It turns out a growing number of these shipments contain counterfeit

or fake goods. Seizures of counterfeit products at U.S.

borders have increased 10-fold over the past two decades.

The total value of seized goods, if they'd been real, reached nearly

$1.4 billion dollars in 2018.

Most are coming from mainland China or Hong Kong.

The Chinese counterfeiters pop up so fast.

The moment you take them down, another one pops up.

The rise of e-commerce has fueled counterfeiting around the world.

Amazon said it blocked more than 3 billion suspected fake listings

from its marketplace in 2018.

International e-commerce sellers must step up and do more.

The economic cost of counterfeiting is mounting.

The OECD says fake goods account for more than 3 percent of all

global trade. While some estimate the sale of illicit products could

result in more than 5.4

million net job losses worldwide by 2022.

U.S. businesses are going out of business because of counterfeit

goods. We visited one of the busiest entry points in the U.S.

to get a glimpse at the influx of fake products and to find out what

authorities are doing to stop counterfeiting.

Counterfeit goods are unauthorized copies of products protected under

intellectual property regulations.

Louis Vuitton, Michael Kors, Gucci and you see this has some writing

on this in another language.

Sellers try to trick consumers into buying imitation goods by using

logos, symbols and features that identify certain brands.

You've probably seen counterfeit products before, like knockoff Louis

Vuitton purses or fake Rolex watches.

Some are made using lower quality materials so they're less expensive

to produce. Counterfeiters make money by luring consumers to these

well-known brands, trying to convince them they're getting a deal on

the real thing. Selling counterfeit goods is against the law in the

U.S. Most Americans, I think, have the misguided impression that if I

buy a Rolex watch and I know it's a fake because I bought it for 20

bucks on the street, not for two thousand bucks in the store, who

gets hurt by that? The reverse question is the more important one.

Who's benefiting from that?

Overwhelmingly, it's organized transnational crime that is running

counterfeiting networks. Counterfeits come in all shapes and sizes.

According to U.S. Customs and Border Protection.

The most popular counterfeit items are apparel and accessories,

watches and jewelry, footwear and consumer electronics.

We got the Nike sneakers.

One of the first things you look at is you can barely bend this.

I'm actually having to use a lot of strength just to get a little bit

of bend out of this.

Counterfeiters take advantage of Nike's name, brand recognition and

multi-million dollar marketing campaigns to sell fake versions of the

signature sneakers.

Do you see a lot of counterfeit Nikes?

Yes. We see a lot of a lot of counterfeit Nikes.

Consumer products and pharmaceuticals also make up a big share of

counterfeit goods.

These are especially dangerous because they pose health and safety

risks. In 2018, Europol intercepted 13 million doses of counterfeit

drugs ranging from opioids to heart medications worth more than $180

million . The agency said it's seen a rise in counterfeit medicine in

recent years. They're not held to the same standard, they can go

under the radar, they don't have to worry about the FDA.

Not only is it not going to probably treat the ailment that you have,

but it's potentially going to give you ther ailments because you just

don't know what's in that product.

With more consumers shopping online, it's becoming easier for fakes

to beat out legitimate products on marketplaces.

E-commerce platforms like eBay, Amazon and Alibaba have ushered in a

golden age for counterfeiters.

One of the great opportunities of the digital economy is that someone

in a small town in Delaware can come up with a really neat product,

and they can sell it globally relatively seamlessly.

But if it really catches on and someone else can simply counterfeit

or copy it, then your competitive advantage is dramatically reduced.

A.J. Khubani is the CEO of Tel ebrands, a New Jersey-based company

that pioneered the concept of As Seen on TV.

Billy Mays here for the Jupiter Jack.

Telebrands says it has sold billions of dollars worth of products

like the Pe diVac or Lint Lizard through TV infomercials.

The counterfeits pop up on Amazon within 30 to 60 days of us

launching a TV commercial.

So now when consumers go to Amazon and search for our particular

product, more people buy the counterfeit because it's a cheaper price

than buy our original product.

This is the original product.

And this is the counterfeit.

Side by side, you can absolutely tell the difference.

The counterfeits on Amazon have had a devastating impact on our

business. Khubani said he was so frustrated he took his concerns all

the way to President Donald Trump.

I met with Trump in Bedminster, New Jersey, at his golf club.

We just pulled it shows up to the table and started talking to him.

And once he said counterfeits on Amazon, that's all we had to say.

We had his attention. Khubani said counterfeits on Amazon are

threatening the business models of companies like Tel ebrands.

The firm invests in finding developing and advertising new products.

It expects to recover those investments once the products are sold.

That's not happening thanks to the fakes.

Think about it. If we spend, put all these resources time, energy,

money, the design, make sure the consumer wants to buy it, come up

with a marketing campaign to launch the product and do all that

effort and find within 30 days the product dies a very fast death

because the counterfeits is not much incentive to be innovative and

continue to come up with new products.

Te lebrands is one of many U.S.

firms struggling to fend off counterfeiters online.

In January 2020.

The Department of Homeland Security issued a report saying the rise

of e-commerce has intensified the problem of counterfeit trafficking

and puts U.S. companies and entrepreneurs at risk.

That puts them out of business.

That's that's the cost.

Bob Barchiesi testified in a House Judiciary Committee hearing in

2019 about how e-commerce presents new opportunities for

counterfeiters. At the click of a mouse, y ou could get product and

you get it directly shipped to your house.

Booming e-commerce sales have led to a surge in shipments of small

packages. There were 161 million express mail shipments in 2018 and

475 million packages shipped through international mail.

The International Chamber of Commerce found counterfeiters use

smaller shipments to try to lower their risk of detection.

Meanwhile, U.S. Customs and Border Protection officials are being

inundated by a growing number of small shipments arriving into the

country every day.

A rule that allows packages valued at under $800 to enter tax-free

has exacerbated the problem.

When we're talking about early 2000s, you're looking at about between

3,000 and 5,000 seizures.

Now, you fast forward to today.

We're almost pushing 40,000 seizures a year.

Not only does it increase the workload and that really gets the

officers in the trenches and they really have to spend a lot of time

and finding that, but it's a multi-billion dollar industry.

We're just scraping the tip of the iceberg.

The U.S. imports more goods from China than any other country in the

world. At this warehouse in New Jersey, about 90 percent of the

products arrive from China.

And it's the job of U.S. Customs and Border Protection officials to

decide which ones are real and which ones are fake.

Boulder, Colorado-based Ni te Ize is another company that has

suffered from counterfeiting.

And it's fighting back.

It said it removed 75,000 counterfeit listings from online

marketplaces in 2019.

I would say 99 percent of the counterfeit products that we see are

coming directly from China.

The supply chain, the components, the raw materials, all of the

things that you need in order to make counterfeits, you have those

set up in China.

In 2018, U.S.

customs agents seized a shipment of 300 counterfeit Nite Ize

accessories like these that had been sold through Amazon by sellers

with names like "Snakey," "Max Max Max," and "Very Lee Good."

We filed a lawsuit to try to track down those counterfeiters.

When Amazon heard about the breadth of the issue, they took over the

case. Amazon has subpoenaed other tech and financial firms to try to

get more information about the fakers' identities.

But tracking down counterfeiters is easier said than done.

The sellers are really good at hiding their identity, and so they

they put up fake stores with fake names and fake addresses.

And so you're really left to find some breadcrumbs.

The immense cost of counterfeiting cases on top of brand damage and

loss sales are too high for some businesses to take on.

But there's nobody we can go after for counterfeiting our products.

Typically, if a company is located the United States and they

counterfeit our product, we have legal recourse.

But if they're based in China, there's no way we can enforce our

intellectual property rights in China.

China pledged to take steps to lower the number of counterfeits

produced in the country as part of the phase one trade agreement with

the U.S.. China has also pledged firm action to confront pirated and

counterfeit goods, which is a big problem for many of the people in

the room. The counterfeiting.

We'll make sure that this happens.

And we have very, very strong protection.

Some still say China will only take the issue seriously once

businesses in the country experience the costs of counterfeiting

themselves. I think it gets solved when you have Chinese companies

and Chinese in innovation and they start getting counterfeit.

And that's happening. Some businesses say e-commerce platforms need

to be held more accountable.

Right now, e-commerce companies aren't usually liable for

counterfeits sold by a third party on their platforms.

In Amazon's case, more than half of total merchandise sales come from

third party sellers.

How many more brick and mortar retailers have to go out of business

before someone goes after Amazon?

How many patent holders and inventors have to lose millions in

royalties before the government finally does something?

In a statement to CNBC an Amazon spokesperson said, "We are actively

fighting bad actors in protecting our store and we will continue to

work with brands, government officials and law enforcement."

The company launched Project Zero in 2019, which allows brands to

remove counterfeits from the marketplace.

It said it invested more than $400 million to fight fraud,

counterfeit and other forms of abuse in 2018.

eBay told CNBC it invests millions of dollars annually to fight

counterfeits. Chinese e-commerce giant Alibaba launched an

anti-counterfeiting alliance in 2017 after widespread criticism about

fake goods on its platforms.

In January 2020, President Trump signed an executive order that tries

to prevent counterfeiting on e-commerce websites.

Meanwhile, legislation introduced in 2019 by a bipartisan group of

senators aims to give U.S.

Customs and Border Protection officers wider authority to seize

products that infringe certain types of patents.

Frankly, it's more important that we find ways to protect the

creators who helped make American society so rich and so robust.

Consumers also play a role in reducing the sale of counterfeits.

Officials say tell-tale signs include a misspellings on packaging,

bad reviews and bargain prices.

The bottom line is, if it looks too good to be true, it is.